NOL

NOL: may fall along with an expected weak market, as news it has signed US$1.54b worth of LOIs for the construction of 12 new vessels and 10 order upgrades may cause some concern amid weak freight rates and tonnage overcapacity worries...

The new vessels will be built in S Korea with ten 14,000 TEU vessels to be built by Hyundai Samho Heavy Industries (011760 SE) and two 9,200 TEU vessels to be built by Daewoo Shipbuilding (042660 SE). NOL also said it is increasing the capacity of ten ships ordered from Daewoo in 2010 to 9,200-TEU from 8,400-TEU. The ships are scheduled to be delivered in 2013 and 2014...

NOL previously said its cash on balance sheet, and its recent Medium Term Note Programme to issue $300m in notes at 4.4% due 2021 would be used to finance the new ship orders. ..

NOL’s shares have been under considerable pressure over the past wk, falling 10.5%, due to a combination of i) uncertainty about new mgt following recent changes to both the CEO and president of APL, the containership operator within the group, ii) weak containership rates, and ii) sliding sentiment towards US and Chinese economic growth. Macquarie believes risk is on the downside, and is in process of reviewing its forecasts. It last had a Neutral rating with TP $2.41.

Container shipping: BNP notes momentum is moving against carriers, with rates trending down despite the traditionally strong summer season. Says carriers are still finding it difficult to lift tariffs in June, and have had to delay any freight rate increase as new capacity on the key Asia-Europe and Asia-US routes largely surpassed incremental demand, and competition has intensified.

Believes freight rates could remain weak until August, and most container carriers could see 2Q11 financial performance deteriorate qoq, despite them already struggling to breakeven in 1Q.